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TMI Blog1961 (8) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of manufacturing expellers, spare, parts etc., under the name and style of Shanker Foundry . The only document in support of the partnership was made on November 30, 1938. That document recited, inter alia, that the shares of the two partners would be equal until the business was discontinued. As Kotaiah, one of the partners, was not maintaining sound health, it was decided between them that they souls convert their business into that of a private limited concern. With this object in view, they took steps to promote and float a company called The Shanker Foundry and Machinery Manufacturing Co. Ltd. It was agreed that the factory lands and buildings, machinery, furniture, implements, etc. and the goodwill of the business should be sold to the limited concern for a consideration of ₹ 2,00,000 to be received in cash. While so, Kotaiah made a will on May 12, 1946 bequeathing all his properties including his interest in the partnership to his wife, Durgamba. The next day the testator died leaving behind him his wife, Durgamba, with considerable movable and immovable properties and his business. The relevant terms of the will are set out hereunder: ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so and maintain proper accounts. If any of them should die or vacate the office, the other two individuals shall choose in his stead another person who is virtuous and who has an orthodox view and spiritualistic bent of mind and the right to appoint by election shall in the aforesaid manner continue for ever. After the death of Kotaiah, the business was continued by the surviving partner, Veera Sarabhaiah, and Durgamba till July 5, 1946, when the sale of the business mentioned above was completed in favour of The Shanker Foundry and Machinery Manufacturing Co. Ltd. In the course of the assessment proceedings for the year 1947-48, the firm claimed that it was entitled to the benefit of exemption from tax conferred by section 25(4) of the Act in respect of the business profits of the period commencing from April 1, 1946, and terminating with July 5, 1946, when the sale of the partnership assets took place. As the accounts were not made up from April 1, 1946, to May 13, 1946, the Income-tax Officer computed the profits arising from the business for the period, April 1, 1946, to July 5, 1946 at ₹ 26,518 and apportioned the said prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady been paid in respect of the income profits and gains of the previous year exceeding the amount payable on the basis of such assessment, a refund shall be given of the difference: Provided that..... It is clear from this section that if the partnership carrying on a business on which tax was at any time charged under the provisions of the Indian Income-tax Act, 1918, is succeeded by a limited concern, the former entity is eligible for relief if it treated as one of continuing partnership in which there was not a mere change in the composition of the partnership. That being the legal position, the firm of Kotaiah and Veera Sarabhaiah could claim the advantage of section 25(4) from April 1, 1946, to the time when it was succeeded by another assessable unit in such capacity i.e., as the owner thereof. A perusal of that section establishes the following three essential ingredients, namely (i) change of ownership, (ii) continuity in the integrity of the business and (iii) identity and continuity of the business in the hands of the person succeeded and the person succeeding. The word succession connotes transfer of ownership and the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticular period. The testator further directed them to sell the business to a relation of his or to any other person as a going concern. In such circumstances the executors claimed the benefit of section 25(4) for the period between the date of the death of the testator and the date of sale of the concern which was effected by them as per the directions in the will. The department took the stand that the assessee could get the benefit of section 25(4) only for the period between the end of the previous year and the date of the death of the testator when the executors succeeded to the business. The Supreme Court, in an appeal from the judgment of the High Court of Bombay which answered the question against the assessee, ruled that succession took place when the testator dies, since his whole estate including the business vested in the executors and they carried on the business within the meaning of section 3 read with section 10. One of the learned judges (Patanjali Sastri J. as he then was) ruled that the expression succeeded by another person in section 26(2) and section 25(4) covered not only succession inter vivos but also the case of succession on death. We fail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst limb of the argument is concerned we do not think that it is permissible for the assessee to urge it now before us for the first time. This case was not put forward either before the department or the Tribunal. The rival contentions urged before the Tribunal are those set out hereunder: The income-tax authorities took the view that by reason of the death of Kotaiah on 13th May, 1946 and in the absence of any provision in the partnership deed made on 30th November, 1938 (annexure 'A'), the partnership between the two, Kotaiah and Sarabhaiah, became dissolved by operation of law on 13th May, 1946, that thereafter and until the business assets were sold to the limited concern on July 5, 1946, the erstwhile business of the said partners was being carried on by Sarabhaiah and Duragamba, that, in the absence of any material to support that they formed a partnership, they were to be assessed in the status of association of persons on the profits of the period May 14, 1946, to July 5, 1946, that the first succession to the partnership business of Kotaiah and Sarabhaiah after April 1, 1939, tool place on May 13, 1946, when Kotaiah died and the firm became dissol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the case preferred by the Appellate Tribunal under the rules framed under the Indian Income-tax Act was prepared with the knowledge of the parties concerned and they had a full opportunity to apply for addition or deletion from that statement, the High Court has to base its judgment on the facts as stated in the statement of the case. That apart, there is no foundation for the argument that there was an agreement which would take the instant case out of the ambit of section 42. The argument of Sri Rajashwara Row, learned counsel for the assessee, is that the conduct of Durgamba and Veera Sarabhaiah would establish a contract to the contrary contemplated by section 42. The learned counsel invites us to draw such an inference from the fact that both of them carried on the business till the date of sale of the assets of the partnership to the limited concern. Assuming that such an agreement could be imputed to Durgamba and Veera Sarabhaiah, that does not advance the case of the assessee for the agreement should be between the original partners of the firm at the time of the formation of the partnership. Nowhere was it suggested that the continuation of the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the partners in certain shares until the business was discontinued and not that the partnership would not stand dissolved on the death of one of the partners but it would be deemed to continue so long as the business was not discontinued. There is, therefore, no substance in this argument either. We shall now turn to the second branch of the argument, namely, that there was no change in the assessable unit inasmuch as the partnership consisting of Veera Sarabhaiah and Durgamba was a continuation of the old one therefore, both the assessable units must be treated as one and the same by reason of the applicability of section 47. We do not think that section 47 of the Indian Partnership Act contains any principle which is helpful to the assessee here. For one thing, section 47 contemplates the dissolution of the partnership and it is only on the footing of dissolution that the surviving partner is empowered to do certain things for the purpose of winding up the concern. The language of that section does not warrant the assumption that, notwithstanding the death of a partner, the partnership should be deemed to continue. The section merely empowers the surviving part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the surviving partners to wind up the affairs of the firm and as between the partners doing so and the other partners or their representatives the former have by virtue of their overriding duty the power to complete all transactions bean but unfinished at the time of the dissolution. This statement of law does not indicate that the representatives of the deceased partner could also join the surviving partner for winding up the affairs of the firm. All that is stated there is that the surviving partners have a duty and power to complete all transactions having regard to the relationship between the surviving partners and the heirs of the deceased partner. For these reasons, our conclusion is that section 47 of the Indian Partnership Act does not enable the assessee to claim that the partnership continues notwithstanding the death of one of the partners. It follows that the old partnership was succeeded by Veera Sarabhaiah Durgamba in the capacity of owners and as such succession took place for purposes of section 25(4) on the death of Kotaiah and the assessee is entitled to the benefit of that section only for the period from 1st April, 1946, to 13th May, 1946. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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